The full story...

Caltex gives up on Kurnell refinery

MARK COLVIN: First, Sydney where the oil company Caltex has decided to close its Kurnell refining operations.

Caltex will shed more than 330 jobs as the Kurnell site is transformed into a simple fuel import facility over the next two years.

The Kurnell closure follows a recent decision by Shell to close its refinery at Clyde in Sydney. It will leave the city without any oil refineries.

Serious questions are now being asked about the security of Australian fuel supplies and the potential flow-on effects at the petrol bowser.

Finance reporter David Taylor.

DAVID TAYLOR: Caltex has had enough, it's been bleeding money in Australia for too long.

The company says its decision to close the refinery at Kurnell in Sydney is based purely on economics.

JULIAN SEGAL: So I'll just point out to you that last year we lost $208 million in our refining operations and that's a situation that cannot continue.

DAVID TAYLOR: Caltex's chief executive officer, Julian Segal.

JULIAN SEGAL: We believe this decision puts Caltex on a much more sustainable path going forward. We will continue to invest in our supply chain and marketing operations to further develop our proven growth platform. Concurrently we will stem the losses at our refining operations by converting Kurnell to a major import terminal.

DAVID TAYLOR: That import terminal will take in and distribute fuel to the Sydney Metropolitan basin. That has been the role of the Kurnell refinery for the past 57 years. So what went wrong?

Well Caltex says the Kurnell refinery was small in scale - producing only 100,000 barrels of petrol a day. It's competing with brand new facilities in Asia, which pump out over a million barrels a day.

Fat Prophets Resources analyst, David Lennox, says Asian refineries have a good incentive to produce petrol on a much larger scale at lower costs of production.

DAVID LENNOX: You know they're within distance of you know, 200-300 million people, where as when you look at Australia we've got a population of what 23 million. So there is already an instant scalability in terms of their operations that the Australian refineries can't ever hope to cope.

DAVID TAYLOR: Caltex currently supplies around 30 per cent of all transport fuels in Australia. To ensure an uninterrupted flow of petrol into Australia, Caltex has teamed up with Chevron.

Under the agreement, Chevron will procure and supply to Caltex imported product from Singapore at market-based prices.

David Lennox says that's cold comfort for motorists now even more reliant on important products to fuel their engines.

DAVID LENNOX: If there's a blockage in the supply chain somewhere outside of Australia’s shores then we would be impacted no matter what happens, you know, Australia is not self-sufficient in crude supply and while that is the case then we will always be susceptible to those types of blockages.

DAVID TAYLOR: Caltex maintains its refinery at Lytton in Brisbane will continue to operate as normal - in fact it's getting a modest upgrade. But with refineries at Kurnell and Clyde gone, it leaves just six refineries remaining in Australia with the possibility more may become redundant.

Caltex insists that while there could be even more Australian refineries on the chopping block, there's nothing to worry about in terms of Australia’s energy security.

JULIAN SEGAL: So I really wouldn't like to comment on the industry as a whole, I'll only point out to you what is in the public domain and that's the, there is going to be some shutdowns in the refining industry in Australia but that does not pose a risk to the reliability of supply because of ample finished product available in the region and very well-established supply chain channels.

DAVID TAYLOR: He's also got the support of the Federal government.

Resources Minister, Martin Ferguson.

MARTIN FERGUSON: The independent national energy security assessment established excess refinery capacity in the Asia-Pacific region and already 80 per cent of the crude oil refined at Kurnell is imported. There are mature import channels and ample product available to meet our needs and I am confident that there will be no problems, difficulties in terms of the supply of fuel to Sydney or any other place in Australia.

DAVID TAYLOR: It hasn't calmed the nerves of the peak body representing Australian motorists.

The Australian Automobile Association is concerned Australia has left itself wide open to fuel supply risks and petrol price volatility.

Executive director, Andrew McKellar.

ANDREW MCKELLAR: We need to ensure that we have adequate reserves in place but also that we're encouraging and developing alternative sources of supply. We need to ensure that there is adequate account taken of the impact that that sort of outcome can have on consumers and on the Australian economy.

DAVID TAYLOR: Caltex will now incur significant costs as it closes the Kurnell refinery, totalling around $430 million. It will also pump $250 million into converting and expanding the current import facilities.

The closure of the Kurnell site is expected to be completed in the second half of 2014.